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Cease the cesses: Don’t try to politicise and distort GST with the cess on sugar

The 27th meeting of the GST Council last week sent mixed signals on the future architecture of India’s most ambitious tax reform. On the positive side, the council has sought to simplify filing of tax returns. Taxpayers will be required to file just one monthly return, with the dates being spread out based on turnover. The change from the current three-stage return filing process is welcome, as is how it has been staggered to allow both taxpayers and government systems enough time to make a smooth transition.

On the other hand, in a move that threatens to severely complicate the GST architecture, a sub-group in the council is to debate the possibility of introducing a cess on sugar, over and above the GST rate. The aim is to raise additional money that will be set aside to offset problems faced by sugarcane farmers and sugar mills on account of a current glut. To underline, consumers are being asked to bear an additional tax to help just some farmers and sugar mills, much of whose sufferings are caused by counterproductive government pricing and tariff policies.

It bears reminding that the transition to GST required Centre and states to subsume different kinds of cess. The only exception was a compensation cess on so-called demerit and luxury goods to deal with shortfall of revenue. The compensation is restricted to five years and is a mechanism meant to ease the switch to GST. The sugar cess is an entirely different matter. It deals with an issue unrelated to GST and comes with inbuilt problems which can distort the entire GST architecture and also undermine the council’s efficacy.

The recent trend in India is that whenever farmers face adverse conditions, state governments shower loan waivers. Now there is this proposal to levy a nationwide extra tax to help farmers of just one crop, who are limited to a few states. Allowing this will lead to a justifiable clamour for more taxes to help farmers of other crops and states. Partisan politics will soon colour the council’s functioning. More state governments may follow the irrational pricing model that exists for sugarcane. The council must therefore reject the sugar cess proposal and focus on converting GST into a good and simple tax. A cess will be antithetical to this idea.

This piece appeared as an editorial opinion in the print edition of The Times of India.